I don't have the numbers handy but I pulled them from the Simba spreadsheet's annual volatility, I believe from 1955-2018. I don't have the Simba with 3x data handy but multiplying S&P500 and LTT by 3 I am getting 50.2% UPRO, 33.7% TMF, 24.4% EDV which would indeed suggest closer to 47/53 as you noted; maybe I made an error back in the day, or maybe the Simba data for the 3x funds had volatility calculated differently.calcada wrote: ↑Sat Oct 17, 2020 3:02 pmHow did you calculate that 55/45 UPRO/TMF has ~28% more leverage than 43/57 UPRO/EDV? Just by comparing standard deviations of the portfolios?MotoTrojan wrote: ↑Sat Oct 12, 2019 12:11 pm It is all about the ratio of volatility of equity to volatility of treasuries. TMF moves more than EDV. The best way to think about it is that 55/45 UPRO/TMF and 43/57 UPRO/EDV are the same portfolio (same ratio of volatility over the long run) but the 55/45 UPRO/TMF one has ~28% more leverage overall. More leverage does not always mean more return, and it does always mean more risk.

1st I got the long-term volatility of simulated UPRO, TMF, and EDV from 1955-2018 using the Simba spreadsheet. You could do the same using Portfolio Visualizer but I don't have simulated EDV data back since VEDTX inception.

Then I took (volatility_UPRO * 0.55) / (volatility_TMF * 0.45) and set that as my equity to bond volatility ratio. In this case the volatility of the bond fund is a proxy for duration as well.

Then I took (volatility_UPRO * 0.XX) / (volatility_EDV * (1-0.XX)) and iterated on XX until the ratio was equal to the 55/45 UPRO/TMF option.

What did you take as the long-term volatility of simulated UPRO, TMF, and EDV? I used 45.27% for UPRO, 29.79% for TMF and 21.63% for EDV and found the allocation to be 47/53 UPRO/EDV instead of 43/57 UPRO/EDV.

Have you considered the approach of matching the overall portfolio volatility of 55/45 UPRO/TMF with that of UPRO/EDV instead of matching their equity to bond volatility ratios? Assuming 55/45 UPRO/TMF has a long-term volatility of 27%, we get a similar long-term volatility with 60/40 UPRO/EDV. What are your thoughts on this approach and on 60/40 UPRO/EDV?

Is matching the equity to bond volatility ratio the better approach than matching overall volatility?

I calculated that it is 28% more leverage because it is 28% more equity (55 / 43 = 1.28).

I don't see any logic in using UPRO/EDV but mirroring the overall portfolio volatility of 55/45 UPRO/TMF; why target an arbitrary volatility with an entirely different portfolio (more equity heavy)? Generally with these risk-parity portfolios you take the most efficient unleveraged portfolio (max sharpe ratio) and then lever it up evenly to your target volatility. I basically did the opposite and said I like the way Hedgefundie's 55/45 UPRO/TMF balances the risks/returns of equities and treasury-duration exposure, but I want to knockdown the overall volatility some, while also using a more efficient fund on the bond-side.

Anyways, I exited this position a good while ago for a healthy profit and am now 100% equity with strong factor tilts. Good luck!